On Friday my Exxon Mobil put
options for June expired. Oil is remaining
volatile, the
Greek Debt Crisis still dominates the news,
there is concern over the ending of QE2 and the
overall stock market is pulling back. Exxon
Mobil is down 10% from its recent high of
$88.00. 10% in any stock can give an investor
pause for thought. It is a moment like this when
patience is a strategy that shouldn't be
ignored. Patience allows time for studying the
stock's chart to pick support levels and
planning on put strike points to consider for
selling once a clearer indication of the stock
trend is presented.
Patience is too often ignored by investors.
Investing is a long term strategy of years and
decades. Unless one is a day or swing trader,
patience for a clear indication as to stock
direction, is an important strategy to use, both
to profit from possible increased premiums in
selling options as well as protection of
available capital from possible loss in a more
severe downturn.
The key to success in investing is consistency. My plan
with Exxon Mobil Stock was to sell naked puts
until either assigned or until I accept stock at a level I
feel is the true value. In my original plan I indicated "Should
Exxon Mobil fall into what I believe is under valued
territory I will consider selling in the money puts on Exxon
Mobil Stock". If the market is entering a more unstable
period and prices do decline lower, I will be unable to take
advantage of any such decline if I do not have patience but
simply use the rest of my capital immediately on this trade.
Therefore often patience is a great strategy to use.
In my comments on
May 23
2011 I indicated that I believe strong support for Exxon Stock is around the $70.00 value. In the
Exxon chart below I am looking at 6 months. Looking at the
chart I can see that the $79.00 level which was support for
much of the last 6 months has been tested and then broken in
the last two sessions.
On Friday, the stock fell below $79 but still closed at
the $79.00 strike. The same the previous day. However on
the 15th of June the stock closed below $79.00 a sign of
weakness and a warning that the $79 level could be
breached. Over the next few sessions the question will
be whether or the $79.00 strike holds. If it breaks, the
200 day is around $77.00. If that breaks then the stock
could quickly fall to around the $72.00 level. Strong
support is at $70.00 and I would think the price of oil
would have to pull back dramatically for this to occur.
I am still holding 5 puts for July at the $75 strike. At
$75, the stock has to fall another 5% from Friday's
close. Meanwhile the Ultimate Oscillator is a very
negative 36.42 and momentum is still negative. With the
constant trading at the $79 support level established
back in January, I see no reason to buy back my July $75
puts yet. If the stock can hold here for a few more
sessions it could move back up to the $80.00 level.
On the other hand should the stock fall, I will look to
roll down my July $75.00 puts. Meanwhile I will hold
back my additional capital in case the stock falls
further. This could push up option premiums even higher
making it possible to sell the $72.50 put for decent
premiums. Presently the July $72.50 put is being traded
for around .40 cents or just slightly more than half a
percent. If however the stock should pull back below
$78, the premiums will be attractive on this put. I will
then try to sell the $72.50 put for August.
SUMMARY
Exxon stock could be at a pivotal point for the year.
With oil under pressure and Exxon Mobil stock already down
10% from its recent high, it may appear safe to sell put
strikes slightly out of the money, but aside from support at
the 6th month low of $79.00, all indicators presently point
to continued weakness in Exxon. This makes any selling of
puts at present, questionable until some direction is clear.
This is the great advantage of not selling all the puts
at one time at one strike. Leading up to June options expiry
I had two sets of puts - one at the July $75 and the other
at the June $77.50. This affords me opportunity to stay
within XOM but through a more protected strategy of holding
two differing strikes in differing months with the furthest
month at the lower strike. This means when August becomes
available, I can then consider selling puts even lower into
August for what could be a decent premium, but again
protecting my capital by continuing to sell at lower
strikes. When I either buy to close July puts or have them
expire, I can then roll those puts into September and if
possible again at lower strikes. In this manner should XOM's
retreat be orderly, I should be able to stay ahead of the
pullback in Exxon Mobil by selling further out of the money
strikes, two months out. If on the other hand, XOM should
collapse quickly, I have a chance that perhaps only one set
of the sold puts may get caught in the money, but with the
second set I may have the opportunity to quickly close, or
it may be far enough out of the money to not get caught in a
fast collapse of the stock.
